Bajaj Auto climbs 4% as brokerages raise targets after strong Q3 show

Bajaj Auto climbs 4% as brokerages raise targets after strong Q3 show

NEW DELHI: Bajaj Auto shares rose 4 per cent on Friday as a host of brokerages upgraded their earnings estimates and targets on the stock after the automaker reported a strong set of quarterly numbers. The auto maker has reported a 23 per cent year-on-year rise in profit to a record Rs 1,556 crore for the December quarter. Revenue for the quarter was up 17 per cent at Rs 8,910 crore, Bajaj Auto said.

The numbers beat Street estimates thanks to optimisation of fixed cost and lower employee costs.

Following the development, the stock rose 4.3 per cent to hit a high of Rs 3, 866.30 on BSE.

Analysts noted that the net realisations for Bajaj Auto were flat sequentially due to a weaker product mix and higher discounts in the domestic market. In the export segment, however, net realisations increased 2 per cent sequentially, led by price hikes taken in the export market.

Ebitda margin at 19.4 per cent, up 150 basis points YoY (up 170 basis points, sequentially beat analysts’ estimates, due to a sharp cut in other expenses, lower-than-expected employee costs and a richer product mix (higher mix of exports segment, said Kotak Institutional Equities in a note.

“The company has announced a capex plan of Rs 650 crore in FY22-23 to produce premium motorcycles and

electric vehicles. This is over and above their regular capex plan, which indicates the company’s focus on the premium motorcycle segment and electric vehicle business,” it said while upgrading its FY2021-23E EPS estimates for Bajaj Auto by 2-3 per cent on higher margin assumptions.

Antique Stock Broking said that Bajaj’s portfolio strategy for Pulsar 125 and KTM 125 corroborated with pricing/variant actions to disturb sub-segment equilibrium has led to positive outcomes on both volume market share and profitability.

“While we expect the cyclical recovery in two-wheelers sales volume in FY22, premiumisation and exports will be the key growth drivers for the industry over the medium-term. Bajaj Auto is our preferred pick in the two-wheeler segment, given its strong brands in the premium segment and leading market position in exports,” the brokerage said while resuming its coverage on the stock with buy rating and a revised price target of Rs 4,500 from Rs 3,574 earlier.

The management said that domestic two-wheeler sales were back to last year’s levels and that base effect will drive growth in the fourth quarter. On a like-to-like basis, it would be in low single-digits, the management said. The domestic three-wheeler segment would see a sequential recovery, but decline 50 per cent YoY. The growth momentum in exports would continue, with 12-15 per cent growth in most markets, Bajaj Auto said.

If ASEAN geography recovers, it would clock its best ever exports, the two-wheeler maker said.

Motilal Oswal has upgraded its FY21 EPS estimate by 7 per cent and FY22 estimate 5 per cent to factor in improved product mix, cost savings, and an upgrade in KTM’s profit. Emkay Global also has raised FY21-23 EPS estimates by 1-6 per cent factoring in higher volume and margin assumptions.

The stock trades at P/E of 15.5 times on FY23 compared with an historical average of 18 times it said while suggesting a Rs 4,370 (Rs 3,976 earlier) target on the stock.

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